There’s nothing new about the rumours that Starbucks wants to allow customers to pay for coffee by crypto – they first announced the plans in August 2018, after partnering up with Microsoft and NYSE owner Intercontinental Exchange (ICE) to launch a new cryptocurrency exchange designed for institutions. Bakkt, the new platform, was expected to see Starbucks accepting Bitcoin payments for coffee soon afterwards, but the option never materialised.
Now, the Startbucks plan looks set to move forward, but there is a potential glitch – tax. Indeed, this issue could well be the single biggest barrier to mass adoption of cryptocurrencies, according to experts. So what exactly is the problem?
If you run a company that deals with foriegn currency transactions, you will be a little more familiar with the headache that such transactions would cause. Let’s imagine a British tourist purchases a cup of coffee in your store at a popular destination in New York, where you declare your income and pay taxes based on US Dollars. Your customer uses his UK debit card to complete the purchase. During the transaction, a currency conversion is performed based on market rates at the time of the transaction. Nothing complicated about that. Not until it comes to tax return time, when you then have to declare the value of your non USD income. Which exchange rate applies? The rate at the time of the tax return or the rate at the time of the transaction….
In theory, the case for cryptocurrency should not be much different. Essentially just some mathematical mayhem to make sure your end of year declarations are correct. Time consuming, yes. But the benefits to your business of accepting currency converted transactions probably far outweigh the negatives. There is, however, an important differentiation that must be made. The base value of different currencies is ultimately controlled by fiscal bodies. Whilst exchange rates fluctuate based on market conditions, conversions between currencies follow pre-defined market conventions. The key to all of this working is that each currency is tied to a legally recognised reserve.
And then cryptocurrency comes along. The problem – what is the true value of cryptocurrency? How is the value of cryptocurrency defined? You get where this is going…
Until a more widespread consensus is reached on how cryptocurrencies, as a decentralised currency that is not tied to any reserve, are valued, the tax collector is going to struggle. And ultimately, most companies do not want to encourage tax officials to start asking complicated questions.
If Starbucks can resolve this and find an acceptable approach that satisfies the need for all stakeholders, then they could just pave the way for a new wave of Bitcoin adoption. All the indicators are, it seems, that a big change is brewing. And it smells good from where we are standing.